Retrospective Cancellation of GST Registration without Proper Reason in SCN: Delhi HC orders Fresh Hearing [Read Order]

The Delhi High Court set aside the retrospective cancellation of GST registration, citing inadequate reasons provided in the Show Cause Notice (SCN).

Visiontek Engineers, engaged in the business of providing service or contractor and trader of air conditioning machines, was issued a show cause notice seeking to cancel its registration. Though the notice does not specify any cogent reason, it merely states, “Any taxpayer other than composition taxpayer has not filed returns for a continuous period of six months.” The show cause notice required the petitioner to appear before the authority issuing the notice. However, the said notice does not specify the date and time when the petitioner was required to appear for a personal hearing.

Further, the said show cause notice also does not put the petitioner on notice that the registration is liable to be cancelled retrospectively. Accordingly, the petitioner had no opportunity to object to the retrospective cancellation of the registration.

The petitioner, represented by Shailender Verma, Subhash Chandra Gupta, and Ashok Kumar, contended that the impugned order passed on the show cause notice does not give any reasons for cancellation.

“It merely states that the registration is liable to be cancelled for the following reason “Whereas no reply to notice to show cause has been submitted”. However, the order itself is contradictory. The order states, “Reference to your reply dated 07/01/2022 in response to the notice to show cause dated 11/10/2021” and the reason stated for cancellation is “Whereas no reply to the notice to show cause has been submitted.” The order further states that the effective date of cancellation of registration is 01.07.2017 i.e., a retrospective date. There is no material on record to show as to why the registration is sought to be cancelled retrospectively.”

The petitioner further submitted that after the cancellation of the GST registration until the date, the petitioner has not carried out any business.

The court found that the show cause notice and the impugned order are bereft of any details. Neither the show cause notice, nor the order spell out the reasons for retrospective cancellation.

The division bench of Justices Sanjeev Sachdeva and Ravinder Dudeja observed that “In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer may cancel the GST registration of a person from such date, including any retrospective date, as he may deem fit, if the circumstances set out in the said subsection are satisfied. The registration cannot be cancelled with retrospective effect mechanically. It can be cancelled only if the proper officer deems it fit to do so. Such satisfaction cannot be subjective but must be based on some objective criteria. Merely because a taxpayer has not filed the returns for some period does not mean that the taxpayer’s registration is required to be cancelled, with a retrospective date also covering the period when the returns were filed and the taxpayer was compliant.

The bench set aside the order and restored the GST registration, directing the petitioner to make all necessary compliances and file the requisite returns and information, inter alia, in terms of Rule 23 of the Central Goods and Services Tax Rules, 2017.

The Delhi High Court clarified that the respondents are not precluded from taking any steps for recovery of any tax, penalty, or interest that may be due in respect of the subject firm in accordance with law, including retrospective cancellation of the GST registration after giving a proper notice and an opportunity of hearing.

To Read the full text of the Order CLICK HERE

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